Najib Razak, who is about to become Malaysia’s next prime minister, will take power at a difficult time both for his party and the country. Voters are disillusioned with Mr Najib’s United Malays National Organisation (UMNO, the dominant party in the ruling coalition), and the global economic crisis is posing policy challenges. Mr Najib needs to address these challenges competently if his premiership is to get off to a good start.
Mr Najib spent much of March outlining his economic vision for Malaysia. This comes at an important juncture in the history of the ruling Barisan National (BN) coalition. Following a poor performance at the March 2008 general election and ongoing challenges to its authority by an emboldened opposition, the prime minister, Abdullah Badawi, was persuaded to step down and make way for a much more combative figure in the shape of Mr Najib. The full handover of power is expected to take place this week following the annual congress of UMNO.
By focusing his energies on the drafting of a second fiscal stimulus package and the outlining of his economic vision, Mr Najib appears to beÂ staking his political future on his ability to steer the economy through what are considered to be the most challenging economic conditions since the 1997/98 Asian financial crisis. Prompted by a unique set of global circumstances, at a time when industrialised economies around the world are suffering from the ill effects of a credit crunch and a sharp downturn in economic output, the authorities unveiled a second stimulus package. At M$60bn (US$16.4bn), its size is unprecedented in Malaysia’s history.
In addition to presenting the stimulus package, Mr Najib declared his intention to steer the economy away from its dependence on manufactured exports and towards services in a “new economic model”. Using government estimates, his medium-term goal is to raise the share of the services sector to 70% of GDP (from the current 54%) and establish a knowledge-based economy. Mr Najib has said that services offer tremendous scope for growth, as services exports currently account for just 14.8% of total exports, compared with 72.5% for manufactured goods.
He identified certain areas for expansion, including Islamic financial services, the provision of healthcare to foreign patients, establishing Malaysia as a regional education centre and boosting eco-tourism. Malaysia is also to focus on high-value-added manufacturing in electronics, biotechnology and green technology, and to move away from a reliance on cheap labour in manufacturing. He also wants the country to diversify its export markets and further boost trade links with South-east Asia, China, India and the Middle East.
Most of the economic plans discussed by Mr Najib are in line with measures outlined in existing medium- and long-term spending plans. However, he did manage to surprise some observers with his views on bumiputera policies, which positively discriminate in favour of ethnic Malays and indigenous groups. Mr Najib declared that in order to support economic restructuring in the months ahead, he is in favour of a gradual reform of bumiputera policies. These policies were introduced in the 1970s by Mr Najib’s father, Malaysia’s second prime minister, Abdul Razak, to raise the low standard of living of ethnic Malays. In practice, these policies have restricted economic opportunities for the country’s Chinese and IndianÂ minorities. Mr Najib gave few details on when a relaxation in bumiputera policies might occur, but suggested that such a move could coincide with an easing of the rules for foreign investment in the services sector.
Comments from Mr Najib in March suggest that there are powerful political arguments to reform or abolish bumiputera policies, and that these are probably more persuasive than economic reasons. A promise to ease theÂ bumiputera policies would be a strong incentive to the ethnic Chinese and Indian parties in the ruling BN not to be tempted by the opposition’s siren song of equal treatment. It could stem the loss of support for UMNO and the BN at a time when the economic downturn is likely to lead to a rise in anti-government sentiment.
Source : Economic Intelligence Unit